1. Field of the Invention
The present invention relates to a method and system for providing minimum contract values in an annuity with lifetime benefit payments; and more particularly, to a data processing method for administering an annuity product for a relevant life, the annuity product having a contract value, a guarantee of lifetime benefit payments and a minimum contract value.
2. Description of the Prior Art
An immediate annuity is typically used to provide an income stream within a predetermined length of time from the date the premium is received. The amount of income can be either fixed or variable in nature and typically these products do not provide an account value. A deferred annuity is typically used to provide accumulation and, potentially, a future stream of annuity income. The deferred annuity comprises an accumulation period during which the account value will vary with the underlying investments and an annuitization period where the client purchases an immediate annuity with the account value available. Deferred and immediate annuities typically provide guaranteed income for life which transfers some portion or all of the risk of outliving one's accumulated assets to the insurer.
One basis for distinguishing commonly available deferred annuities is whether the annuity is classified as a “fixed annuity” or a “variable annuity”.
In a fixed annuity, the insurer guarantees a fixed rate of interest applicable to each annuity deposit. Therefore, a fixed annuity is desirable for those seeking a “safe” investment. The guaranteed interest rate may apply for a specified period of time, often one year or more. Often, a rate guaranteed for more than one year is called a “multi-year guarantee”. The rate credited on a fixed annuity is reset periodically, moving in an amount and a direction that correlate the yields available on fixed-income investments available to the insurer.
With a variable annuity, the annuity contract owner bears the investment risk. The relevant life typically has a choice of funds in which he/she can direct where the annuity deposits will be invested. The various funds, or sub-accounts, may include stocks, bonds, money market instruments, mutual funds, and the like.
Variable annuity contracts typically provide a death benefit. Oftentimes, during the accumulation period, this death benefit is related to the contract value. That is, if the sub-accounts backing the contract value have performed poorly, then the death benefit may be reduced to an insignificant amount. After annuitization, the death benefit can be a function of the remaining payments of the annuity at the time of the relevant life's death. Further, if the annuity contract does not provide a guarantee (GMIB, GMWB, etc.), the contract will terminate when the contract value goes to $0 or some other amount specified in the contract or rider.
Annuity contracts may also provide guarantees in several different variations. A Guaranteed Minimum Death Benefit (GMDB) is a guarantee that provides a minimum benefit at the death of the relevant life regardless of the performance of the underlying investments. A Guaranteed Minimum Income Benefit (GMIB) is a guarantee that will provide a specified income amount at the time the contract is annuitized. The income payment will be dependent on previously stated details set out in the contract. A Guaranteed Minimum Accumulation Benefit (GMAB) is a benefit that guarantees a specified contract value at a certain date in the future, even if actual investment performance of the contract is less than the guaranteed amount. A Guaranteed Minimum Withdrawal Benefit (GMWB) is a guarantee of income for a specified period of time, and in some versions the income stream is guaranteed for life without requiring annuitization as in the guaranteed minimum income benefit. However, this guarantee will automatically annuitize the contract if the contract value is reduced to zero or some other amount specified in the contract or rider.
There remains a need in the art for a data processing method for administering an annuity product for a relevant life wherein the annuity product has a guarantee of lifetime benefit payments. In addition, there is needed a data processing method wherein the annuity product is designed to maintain a minimum contract value while continually paying lifetime benefit payments wherein the minimum contract value helps to prevent the contract value from otherwise being reduced to zero or below another stated amount in the contract or rider which, in that case, would require the contract to annuitize in order to continue lifetime payments.
In addition, there is needed an annuity product wherein, if necessary, the lifetime benefit payments are funded by the general account assets of the company that issues the annuity product, rather than from the contract value, in order to help prevent the contract value from being reduced to zero or below another stated amount in the contract or the rider.